Georgia Works

No More College Tuition?

If you don’t believe paying for college is a challenge, consider this, college debt exceeds credit card debt in the United States.

The cost of a college education is rising at a faster rate than the cost of healthcare. And these costs are being consumed, for the most part, by young people who have yet to start their first “real” job. It’s no wonder college debt has become very much a financial crises.

The model of paying for college seems counter-intuitive. Those who cannot afford a six-figure debt, are the very people taking it on.

Oregon lawmakers have decided to flip this method of paying for college education with a unique financing model.

The “Pay Forward, Pay Back” plan passed the Oregon legislature in a unanimous vote. This new law creates a pilot program that allows students to attend Oregon Public Colleges and Universities tuition free.

So what’s the catch?

Participating students must sign a binding contract with the state to pay a portion of their adjusted gross income over many years as repayment.

Some may wonder how this plan is any different from a traditional student loan.

Consider first the current traditional student loan.

Suppose two students, one majoring in education and one in engineering, take out loans from private banks to pay for tuition. Assuming both students are at the same school, the loan amounts will be similar. Regardless of what the students ultimately earn post-graduation, the loans must be paid back. Therefore, the student who becomes a teacher and has an adjusted gross income of $50,000 per year will pay back the same amount as the engineer who is at $100,000 per year.

Now consider the Oregon plan.

Two students, one majoring in education and one majoring in engineering, go to a school with no tuition payments. Each student has signed an agreement with the state to pay 3% of their adjusted gross income back to Oregon for a period of 25 years. Using the income figures from the previous example, and inflationary salary increases, the engineer will pay back more than twice what the teacher pays.

So while architects of the Oregon “Pay Forward, Pay Back” plan should be commended for creating a unique option for financing education, the reality is that payment plans don’t change costs. Ultimately all costs are covered by someone; students, graduates, taxpayers, or donors. The only real solution to lowering the price of a college education is to contain costs. Doing so is certainly no easy task.